Question

T or F Firms tend to be less profitable when there is higher real growth in...

T or F

Firms tend to be less profitable when there is higher real growth in the underlying market than when there is lower real growth

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Answer #1

False.

Firms tens to be more profitable when there is more growth in the underlying market because increase in the underlying market increase client base for the firms and thus with increase in overall market clients will have more funds to buy good/services. With that extra profits firms can have more revenues which they can invest to buy more assets/ pay off liabilities and thus reach economies of scale.

Also due to market forces of demand/supply the demand will increase making firms more profitable.

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